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Trade Secrets in the Fast Lane - Formula One and the Importance of Trade Secret Protection
BlogTrade Secrets Watch

“For a competition to be friendly, it should be scrupulously fair.” The Formula One world was recently jolted by allegations that a former Mercedes-Benz AMG engineer took highly-confidential information in anticipation of joining Mercedes’ chief competitor Ferrari. Mercedes recently filed suit in the High Court of Justice in the United Kingdom. To many in the Formula One world, the recent news is reminiscent of 2007’s “Spygate” controversy involving confidential technical data misappropriated from Ferrari. Nearly a decade later, the recent allegations underscore an important facet of Formula One: Formula One teams go to extraordinary lengths to protect their design secrets created at a cost of hundreds of millions of dollars.

Most fans see Formula One as simply a car race, where cars roar around a track at speeds not comprehendible to the average driver. But Formula One is much more than a race—it is a data driven breeding ground for automotive innovation that, at times, has commercial applications outside the track. Each team strives to develop new designs and technology in hopes of solidifying a place in the winner’s circle. Formula One is often portrayed as a best-practice example of how community, trust, knowledge-spill over, and common conventions facilitate rapid innovation, despite the prevalence of “legal spying” that occurs in an industry valued by some at 9 billion dollars.

Each team’s most prized asset is its engine, since it is ultimately the engine that determines whether a team ends up as world champions. Just four manufacturers—Mercedes, Ferrari, Honda, and Renault—supply engines to the entire Formula One Grid, at a cost of as much as 17 million pounds ($25.5 million) a team per season. Each team then tweaks the engines according to its design specifications. To ensure they boast the best and fastest engine, teams work 365 days a year to constantly design newer technology for the cars in the hopes of achieving a minute advantage over their competitors. Even the tiniest technological advantage could make the difference between having a championship caliber engine or a middle-of-the-pack engine.

Although highly common in most high-tech fields, patent protection is curiously missing in Formula One. Teams forgo the ability to patent their engine designs because it takes years to obtain a patent. In the constantly changing Formula One world, where data changes on a daily basis, any patented design will likely become obsolete by the time the patent is granted. As a result, teams are forced to maintain their competitive advantage through trade secret protection. Mercedes employs a “USB Storage Pen Device Usage Policy” to protect its confidential information, mandating that: “the devices provided by [Mercedes’ High Performance Powertrains (“HPP”) division] will be the only devices for use under HPP IT security compliance and encryption requirements. The use of any USB devices other than those provided by HPP is strictly prohibited.”

In its recent complaint, Mercedes claims Benjamin Hoyle, an engineer working in Mercedes’ HPP division, informed Mercedes in May 2014 that he was leaving Mercedes when Hoyle’s contract expired at the end of 2015. Shortly thereafter, Mercedes learned that Hoyle was joining Ferrari. As a result of Hoyle’s impending employment at Ferrari, in April 2015, Mercedes took aggressive measures to affirmatively protect its confidential information. Mercedes reassigned Hoyle to duties unrelated to F1 and instructed him not to access or view any F1 documents. Moreover, Mercedes took Hoyle’s laptop and gave him a clean laptop wiped of F1 information, assigned him a new email address so he didn’t receive any F1 info, and took away his security access card that would allow him physical access to the F1 department.

Unfortunately, according to Mercedes, those precautions were not enough. Hoyle allegedly took files including a race report from the Hungary 2015 Grand Prix, mileage and damage data relating to Mercedes’ F-1 engines, and files containing code required to decrypt raw race data files. Mercedes further alleges that Hoyle deleted files to try to cover his tracks. Now, Mercedes wants its data back and seeks to restrain Hoyle from working at Ferrari or any other competitor for the 2016 season.

This case suggests to companies that a thorough analysis is required on whether a company is better off letting the employee go once you know the employee is headed for a competitor. Mercedes tried to take the right steps in protecting its trade secrets and confidential info, but from the allegations of the complaint, it appears Hoyle was still motivated to find other ways to help his future employer. Important considerations for employers in this situation include how valuable the information is that the employee has access to, how the company’s information will benefit his new employer, and the cost/benefit of walking an employee out immediately versus having him stay for the remainder of his contract or to transition responsibilities.

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